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Thursday, August 05, 2021

A Deep Dive into the Jackson Hole Symposium

By Century Financial in 'Investment Insights'

A Deep Dive into the Jackson Hole Symposium
A Deep Dive into the Jackson Hole Symposium

*Trading in financial markets carries risk and can result in loss of capital
*This performance is only observed with historical backtests and not traded by the company

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The product and investment ideas do not consider the risk profile and financial position of the recipient and may not be suitable for everyone. Trading in financial markets and use of margin involves a significant risk of loss, which can exceed deposits. Please read the complete disclaimer carefully.

*The flyer is for information purpose only. The flyer attempts to highlight the past performance of major asset classes during the event days.

The annual gathering of central bankers and policy makers in Jackson Hole has attracted extensive press coverage. Initially started by Federal Reserve Bank of Kansas City in 1978, the symposium focuses each year on an important economic issue that the world faces. Participants include prominent central bankers, finance ministers, as well as academic luminaries and leading financial market players from around the world.

For this year, the event is scheduled to be held on August 26th – 28th with the agenda being “Macroeconomic Policy in an Uneven Economy”. The below table gives a brief on each of the past 6 gatherings

A few of the notable observations are -

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US equity markets have faced some amount of gyrations during the event meeting. Over the longer term, US equity markets have always been dictated bythe state of the US economy and the various Fed meeting outcomes.
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The Fed has always communicated its bias towards the hawkish tilt side. In recent years, the Fed has rather tried to be more respectful of the markets and instead put out their statement in a more conservative manner. This is to avoid the mistakes learned during the past 2013 Taper Tantrum.
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SPX 500 index has rallied on 5 out of the past 6 occasions. This was seen even when the overall tone was hawkish.
Immediate impact following the event (Underlying price action during the event days)
Year Month Date Event Title Overall Tone Description Dollar Index SPX 500 Index Gold
2015 August 27 - 29 Inflation Dynamics and Monetary Policy Hawkish The overall consensus was that FED should feel free to begin tightening monetary policy with rate hikes as early as mid-September, despite the slowing Chinese economy, the low readings on inflation, the rallying dollar, and the elevated volatility in world financial markets. 0.90% 2.50% 2.50%
2016 August 25 - 27 Designing Resilient Monetary Policy Framework for the Future Hawkish Fed Chair Yellen put forward a strong case for interest rate hike during the later part of 2016. She suggested that gradual increases are appropriate but warned that the historically low rates could hinder attempts to fight recession in near future. 0.85% 0.30% -0.22%
2017 August 24 - 26 Fostering a Dynamic Global Economy Status Quo Rather than comment on monetary policy, Fed Chair Yellen chose to defend the progress made in recent years on financial regulation and warned about the dangers of excessive de-regulation. President Draghi also steered clear of immediate policy issues, and this notwithstanding the additional pressures associated with the recent strengthening of the single currency. -1.05% 0.10% 1.40%
2018 August 23 - 25 Changing Market Structures and Implications for Monetary Policy Status Quo Fed Chair Powell spent most of his time explaining the challenges being faced by the central bank as it conducts its monetary policy. Mr. Powell emphasized the difficulties of understanding America’s changing economy and argued for a flexible approach. This was not a surprise considering this was his first year in the full 4 year term. -0.43% 1.20% 0.80%
2019 August 22 - 24 Challenges for Monetary Policy Dovish with hawkish tilt for future Powell, while not saying specifically where he thought rates should go, promised that the Fed will act as appropriate to sustain the expansion.He also informed of the economy being close to both goals of the Fed’s dual mandate of full employment and price stability. -1% -2.80% 1.50%
2020 August 27 - 28 Navigating the Decade Ahead : Implications of Monetary Policy Dovish Federal Reserve Chair Powell announced a major shift in the way the central bank aims to achieve maximum employment and stable prices. The new approach signaled that the Fed won’t increase interest rates to respond to low unemployment levels and also won’t worry as much about low rates triggering a temporary rise in runaway inflationary pressures. -0.50% 0.60% 0.50%
2021 August 26 - 28 Macroeconomic Policy in an Uneven Economy Expectations of Status Quo with slight hawkish tilt With the US economy in recovery more, the Fed is unlikely to announce any major policy shift. The Fed is however likely to make passing remarks on need for raising rates should the inflationary trends look more peristent.

Data Source : Bloomberg

Risks and Assumptions for Back-tested trading strategies
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The risks and assumptions listed here are not intended to be an exhaustive summary of all the risks and assumptions involved.
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The strategy might suffer from look-ahead bias which occurs due to the use of information or data in a study or simulation that would not have been known or available during the period being analyzed. This can lead to inaccurate results in the study or simulation.
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Future price movements may not be exactly the same as the historical price movements and this could lead to variation in performance.
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Testing can sometimes lead to over-optimization. This is a condition where performance results are tuned so high to the past they are no longer as accurate in the future.
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The model assumes no slippages in trading. Slippage refers to the difference between the expected price of a trade and the price at which the trade is actually executed.
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Drawdowns in actual trading can be higher than the tested system and losses could be significant in the event of leverage.
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Unforeseen events can lead to variation in performance from the tested trading strategy.
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The tested result has been computed with price feeds available from Bloomberg.
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The testing environment has not considered transaction or any other costs.
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Trading indicators used for the purpose of testing has been provided by Bloomberg.
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The strategy might suffer from data mining fallacy, selection bias and backfill bias.

Data Source: Bloomberg
Date: 05/08/2021

Arun Leslie John
Chief Market Analyst

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